1. Operations Management and Quality
What’s in this for you?
By understanding the methods for managing operations and improving quality in this chapter, you can benefit in two ways:
As an employee, you’ll have a clearer picture of who your customers are and what they want, and you’ll also learn how your job depends on the services they receive from you.
You’ll better understand how companies around you—even successful firms—have to change production methods whenever they adopt new business goals to remain competitive.

2. Operations Management and Quality
What’s in this for you?
By understanding the methods for managing operations and improving quality in this chapter, you can benefit in two ways:
As an employee, you’ll have a clearer picture of who your customers are and what they want, and you’ll also learn how your job depends on the services they receive from you.
You’ll better understand how companies around you—even successful firms—have to change production methods whenever they adopt new business goals to remain competitive.

3. Operations Management and Quality
What’s in this for you?
By understanding the methods for managing operations and improving quality in this chapter, you can benefit in two ways:
As an employee, you’ll have a clearer picture of who your customers are and what they want, and you’ll also learn how your job depends on the services they receive from you.
You’ll better understand how companies around you—even successful firms—have to change production methods whenever they adopt new business goals to remain competitive.

4. Operations Management and Quality
What’s in this for you?
By understanding the methods for managing operations and improving quality in this chapter, you can benefit in two ways:
As an employee, you’ll have a clearer picture of who your customers are and what they want, and you’ll also learn how your job depends on the services they receive from you.
You’ll better understand how companies around you—even successful firms—have to change production methods whenever they adopt new business goals to remain competitive.

5. What Does Operations Mean Today?
Operations (Production)
All the activities involved in making products (goods and services) for customers
Service Operations (Service Production)
Provide intangible and tangible service products
Goods Operations (Goods Production)
Produce tangible products
Operations managers create utility for customers through production, inventory, and quality control.
What does operations mean today?
Operations, or production, includes all the activities involved in making products, including goods and services, for customers.
Service operations, or service production, provides intangible and tangible service products.
Goods operations, or goods production, produces tangible products.
Operations managers create utility for customers through production, inventory, and quality control.

6. Operations Management
Input:
Resources
Physical Materials
Equipment
Information
Customers
Human Skills
Transformation
Process
Output:
Products and Services
Cars
Clothing
Haircuts
EMS Delivery
Hotel room rental
Cakes
Education
Etc.
Design
Improvement
What does operations mean today?
Operations, or production, includes all the activities involved in making products, including goods and services, for customers.
Service operations, or service production, provides intangible and tangible service products.
Goods operations, or goods production, produces tangible products.
Operations managers create utility for customers through production, inventory, and quality control.
Planning & Control
Customer
have “Wants and Needs”
Operations
creates “Value”
Operations provides “Utility”

7. Creating Value Through Operations
Utility
The ability of a product to satisfy a want or need
Form utility
Time utility
Place utility
Operations (Production) Management
Systematic direction and control of processes that transform resources into finished services and goods that create value for and provide benefits to customers
Creating value through operations provides utility. Utility is the ability of a product to satisfy a want or a need. Types of utility include:
Form utility
Time utility
Place utility
Operations, or production management, is the systematic direction and control of processes that transform resources into finished services and goods. The services or goods create value for and provide benefits to customers.

8. Differences Between Service and Goods Manufacturing Operations
Goods are produced, services are performed
Service operations:
Involve interacting with consumers
Are sometimes intangible and unstorable
Involve a customer’s presence in the process
Involve certain service quality considerations
There are differences between service and goods manufacturing operations: Goods are produced while services are performed.
Service operations differ from manufacturing operations in that service operations:
Involve interacting with consumers
Are sometimes intangible and unstorable
Involve a customer’s presence in the process
Involve certain service quality considerations

9. Goods Production Processes
Operations Processes
Operations Process
Methods and technologies used to produce a good or service
Goods Production Processes
Make-to-order or make-to-stock processes
Service Production Processes
Extent of Customer Contact
Low-contact systems: low customer involvement
High-contact systems: high customer involvement
Operations processes are a set of methods and technologies used to produce a good or a service.
Goods production processes include:
Made-to-order processes
Made-to-stock processes
Service production processes depend on the extent of customer contact required:
Low customer contact systems mean low customer involvement.
High customer contact systems mean high customer involvement.

10. Business Strategy as the Driver of Operations
Companies design their operations based on business strategy.
It is important to know that businesses with contrasting or differing business strategies choose different operations capabilities.
These capabilities are the activities or processes that the production team within the company must perform especially well and with high proficiency.

11. TABLE 7.1 Business Strategies That Win Customers for Four Companies
Table 7.1 provides us with business strategies that win customers for four different companies. Let’s take a look at each one.
Toyota’s strategy for attracting customers is quality. In order to implement its strategy, Toyota has to make cars that perform reliably, have an appealing fit and finish, and consistently meet or exceed customer expectations at a competitive price.
Save-A-Lot’s strategy for attracting customers is low price. In its stores, food and everyday items are offered at savings up to 40 percent less than conventional food chains.
3M’s strategy for attracting customers is flexibility. The company emphasizes innovation, offering more than 55,000 products in a constantly changing line of convenience items for both the home and office.
FedEx’s strategy for attracting customers is dependability. Every delivery they make is fast and on-time as promised.

12. Operations Planning Capacity Planning Location Planning
Determining the amount of a product that a company can produce under normal conditions
Location Planning
Determining where production will happen based on costs and flexibility
Operations planning includes three types of planning: capacity, location, and layout.
First we will examine capacity planning.
Capacity is the amount of a product that a company can produce under normal conditions.
Planning for capacity deals with determining how much of the product can be produced.
The second type of operations planning we will examine is location planning.
Location—where the product is produced—affects production costs and flexibility.
Planning for location deals with determining where the product will be produced.

13. Operations Planning (cont.)
Layout Planning
Planning for the layout of machinery, equipment, and supplies
Determines whether a company can respond to demand for more and different products or it finds itself unable to match competitors’ speed and convenience
Process layouts
Product layouts
The third type of operations planning is called layout planning.
The layout of machinery, equipment, and supplies determines whether a company can respond efficiently to demand for more and different products, or whether it finds itself unable to match competitors’ speed and convenience of production.
Layout planning deals with determining how the product will be produced, which includes:
Process layouts
Product layouts

14. FIGURE 7.1 Operations Planning and Control
Figure 7.1 provides us with a visual way to look at operations planning and control. There are four basic steps in this model.
The business plan and sales forecasts provide information.
That information leads to long-range operations planning. This includes:
Capacity
Location
Layout
Quality
Methods
This information feeds into the preparation of operations schedules, which include:
The master production schedule
Detailed schedules
Staff schedules
Project schedules
Finally this information feeds into actual operations control. This includes:
Quality control
Materials management
All of these factor into the output of products or services for customers. The information or feedback received from the customers can be analyzed and result in alterations to each step.

15. Quality Planning What Is Quality?
The combination of “characteristics of a product or service that bear on its ability to satisfy stated or implied needs”
Begins when products are designed: goals are set for performance and consistency
Includes deciding what constitutes a high-quality product and determining how to measure these quality characteristics
Let’s take a look at quality and quality planning.
Quality is the combination of characteristics of a product or service that bear on its ability to satisfy stated or implied needs. This definition comes from the American Society for Quality.
Quality planning begins when products are designed. Goals are set for performance and consistency. Quality planning includes deciding what constitutes a high-quality product and determining how to measure these quality characteristics.
Teaching Tips:
In your student teams please choose one of the companies you have been discussing during this class period. Please choose one of their products or services and analyze that product’s or service’s quality planning. Do you think that the goals the company has set for performance and consistency are being met? How would you change their quality planning? We will share our analysis with the class.
Answers will vary, but be sure the student teams deal with the elements of performance and consistency for the product or service and company they choose to discuss.

16. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Methods Planning
Managers identify each production step and methods for performing it.
They reduce waste and inefficiency through methods improvement and improving process flows.
A detailed description, often a process flowchart, helps managers organize and record information.
They attempt to improve customer service.
Another type of planning is methods planning. With methods planning, managers accomplish a number of things:
They identify each production step and methods for performing it.
They reduce waste and inefficiency by examining procedures in an approach called methods improvement.
They reduce waste and inefficiency by improving process flows.
A detailed description, often called a process flowchart, helps managers organize and record information.
They attempt to improve customer service.
Teaching Tips:
For one of the companies you have been analyzing, please discuss in your student teams how that firm has attempted to utilize methods planning, perhaps in the area of customer service. We will share our examples with the class.
Answers will vary by company. Try to keep student teams focused on customer service improvement or waste and inefficiency.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

17. Operations Scheduling
Times when specific production activities will occur
Kinds of Planning Schedules
Master schedule: Shows which products will be produced, and when
Detailed schedule: Shows day-to-day activities
Staff schedules: Show who and how many employees will be working, and when
Project schedules: Coordinate completion of large-scale projects
Now we are going to look at operations scheduling. Operations scheduling identifies times when specific production activities will occur.
There are four kinds of planning schedules:
Master Schedules: Master schedules show which products will be produced, and when, in upcoming time periods.
Detailed Schedules: These schedules show day-to-day activities that will occur in production.
Staff Schedules: These schedules show who and how many employees will be working and when they will be working.
Project Schedules: These schedules coordinate the completion of large-scale projects.
Teaching Tips:
In your student teams, please choose one of the four kinds of planning schedules we have just discussed. Please analyze how one of the companies you have discussed today in other examples might use the type of planning schedule your team selected.
Answers will vary.

18. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
FIGURE 7.3 Example Partial Master Production Schedule (Tons of Each Product to be Produced)
Let’s look at an example partial master production schedule. This schedule shows us the number of tons of each coil product the company produced during specific weeks.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

19. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Project Scheduling
Gantt Chart
Breaks down projects into steps to be performed
Specifies the time required to complete each step
A Project Manager uses the Gantt chart to:
List all activities to be performed
Estimate the time required for each step
Record the progress on the chart
Check the progress against the time scale on the report
Project scheduling also includes the preparation of a Gantt Chart. A Gantt chart breaks down projects into steps to be performed, and it specifies the time required to complete each step.
A Project Manager uses the Gantt chart to complete the following four things:
List all activities to be performed.
Estimate the time required for each step.
Record the progress on the chart.
Check the progress against the time scale on the report.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

20. Figure 7.4 Gantt Chart
This Gantt chart is being used to manage classroom furniture repair in a university. The darker blue shaded area tells us what work has already been completed. The green area shows the time allotted for each step in the project.

21. Operations Control Operations Control
Requires managers to monitor performance by comparing results with detailed plans and schedules.
Follow-up: Checking to ensure that production decisions are being implemented; critical, ongoing facet of operations.
Operations control is another important aspect of production management. Operations control requires managers to monitor performance by comparing results with detailed plans and schedules.
Follow-up is a key and ongoing facet of operations. Follow-up requires checking to ensure that production decisions are being implemented.

22. Materials Management Activities
The process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods
Materials Management Activities
Supplier selection
Purchasing
Transportation
Warehousing
Inventory control
Materials management is the process by which managers plan, organize, and control the flow of materials from sources of supply through distribution of finished goods.
Materials management activities include the following items:
Supplier selection
Purchasing
Transportation
Warehousing
Inventory control

23. Lean Production Systems: Just-in-Time Operations
Lean Production Systems Goals
Smooth production flows avoid inefficiencies
Elimination of unnecessary inventories
Continuous improvement in production processes
Just-in-Time (JIT) Production
Bringing together all needed materials only when they are required, creating fast and efficient responses to customer orders
Now let’s examine lean production systems. The goals for lean production systems provide the following for the company:
Smooth production flows, avoiding inefficiencies
Elimination of unnecessary inventories
Continuous improvement in production processes
Part of lean production system planning includes the use of Just-in-Time, or JIT, production. Just-in-Time production brings together all needed materials only when they are required, creating fast and efficient responses to customer orders.
Teaching Tips:
In your student teams please discuss which, if any, of the companies you have been analyzing might use lean production systems goals and/or Just-in-Time production and why they might use these processes. We will share our answers with the class.
Answers will vary based on companies reviewed, but should include the points made in this slide.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

24. Benefits of Just-in-Time Production
Reduces the number of goods in process (goods not yet finished)
Minimizes inventory costs
Reduces inventory storage space requirements
Replaces stop-and-go production
Disruptions are visible and get resolved quickly
Continuous improvement of the process
There are a number of benefits realized from Just-in-Time production. Let’s review them. JIT:
Reduces the number of goods in process, or goods that are not yet finished
Minimizes inventory costs
Reduces inventory storage space requirements
Replaces stop-and-go production with smooth movement
Makes disruptions more visible and therefore easier to resolve quickly
Provides for continuous improvement of the production process
Teaching Tips:
In your student teams, please choose one benefit of Just-in-Time production and relate it to one of the companies you have been analyzing today.
Answers will vary.

25. Quality Control Quality Control
Taking action to ensure that operations produces products that meet specific quality standards
Requires establishment of specific standards and measurements
Quality Control means taking action to ensure that operations produces products that meet specific quality standards. It also requires the establishment of specific standards and measurements.

26. Quality Improvement and Total Quality Management
Building quality into products and services rather than trying to control quality by inspection
Total Quality Management (TQM)
All of the activities necessary for getting high-quality goods and services into the marketplace
Quality Ownership
Quality belongs to each person who creates it while performing a job and it requires a focus on quality by all parts of an organization
Quality improvement and total quality management are also important issues for any organization. Quality improvement means building quality into products and services rather than trying to control quality by inspection.
Total Quality Management, or TQM, involves all of the activities necessary for getting high-quality goods and services to the marketplace.
Quality Ownership means that quality belongs to each person who creates it while performing a job. It requires a focus on quality by all parts of an organization.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

27. Total Quality Management
Always Delivering High Quality
Planning for quality
Organizing for quality
Directing for quality
Controlling for quality
Any organization using total quality management should always deliver high quality. This includes:
Planning for quality
Organizing for quality
Directing for quality
Controlling for quality

28. Tools for Total Quality Management
Competitive Product Analysis
Analyzing competitors’ products to identify improvements
Value-Added Analysis
Eliminating wasteful and unnecessary activities
Quality Improvement Teams
Adopting quality circles
Getting Closer to the Customer
Identifying internal and external customers
ISO 9000 and ISO 14000
Ensuring certification of quality management in processes
Business Process Reengineering
Starting over from scratch to improve processes
Now we will look at tools for total quality management. There are a number of tools available for companies to achieve total quality management. These include:
Competitive Product Analysis
The analysis of a competitor’s products to identify potential areas of improvement
Value-Added Analysis
The elimination of wasteful and unnecessary activities
Quality Improvement Teams
This involves adopting quality circles
Getting Closer to the Customer
This can be accomplished by identifying internal and external customers
ISO 9000 and ISO 14000
Meeting these standards ensures certification of quality management in a firm’s processes
Business Process Reengineering
This includes analyzing a company’s business processes and, if necessary, starting over from scratch to improve the processes or replace them with technology or different, more efficient methods.

29. Adding Value Through Supply Chains
Supply Chain (or Value Chain)
The flow of information, materials, and services that starts with raw-materials suppliers and continues adding value through other stages in the network of firms until the product reaches the end customer
Value can also be added to an organization through supply chains. A Supply Chain, or Value Chain, is the flow of information, materials, and services that starts with raw-material suppliers and continues adding value through other stages in the network of firms until the product reaches the end customer.
Let’s look at an example of a supply or value chain.

30. FIGURE 7.5 Supply Chain for Baked Goods
Figure 7.5 provides us with a visual example of a supply chain for baked goods. Let’s examine the steps and the value that is added by each element of the chain.
Farmer: The farmer grows the grain and sells it to…
Co-op grain storage facility: Houses the grains from many farmers until shipping it to…
A flour miller: The flour miller takes the raw grain and turns it into flour. The flour miller will then sell the flour through a wholesale food broker to a…
Baking Company: The company bakes the rolls, bread, or other baked good.
At the other end of this spectrum is the forester.
Forester: Grows the trees and cuts them down and transports them to the…
Pulp Maker: Pulp maker turns the wood into pulp and ships it to a…
Paper Factory: Produces paper packaging which is shipped to the baking company, which inserts their baked goods into the paper packaging and sends the units to…
A distributor or food broker: Ships the pre-packaged bakery products to the grocery store, which puts the baked goods on its shelves for purchase by the…
Consumers!

31. The Supply Chain Strategy
Supply Chain Management (SCM)
Working with the supply chain to improve overall flow by companies working together
Supply Chain Reengineering
Improving the process for better results:
Lower costs, speedier service, and coordinated flows of information and material
Outsourcing and Global Supply Chains
Paying suppliers and distributors to perform certain business processes or to provide needed materials or services
Let’s look at the supply chain strategy.
First we have supply chain management, or SCM.
Supply chain management involves working with the supply chain as a whole to improve overall flow through a system composed of companies working together.
Supply Chain Reengineering.
Supply chain reengineering improves the process for better results which include:
Lower costs
Faster service
Coordinated flows of information and material
Outsourcing and Global Supply Chains
This involves paying suppliers and distributors to perform certain business processes or to provide needed materials or services.

32. Key Terms ISO 14000 assembly line ISO 9000
business process reengineering
capacity
competitive product analysis
consistency (in quality)
detailed schedule
follow-up
Gantt chart
goods operations (goods production)
high-contact system
inventory control
ISO 14000
ISO 9000
just-in-time (JIT) production
lean production system
low-contact system
make-to-order operations
make-to-stock operations
master production schedule (MPS)
materials management
operations (production)
operations (production) management
There are many key terms that we learned in this chapter.

33. Key Terms (cont.) operations (production) manager
operations capability
operations control
operations process
performance (in quality)
process layout
product layout
purchasing
quality
quality control
quality improvement team
quality ownership
service operations (service production)
staff schedule
supplier selection
supply chain (value chain)
supply chain management (SCM)
total quality management (TQM)
transportation
utility
value-added analysis
warehousing
There are many key terms that we learned in this chapter.